Taoiseach Leo Varadkar has given the strongest indication yet that older people can look forward to a €5 increase in their pension after Budget day.

However, he has effectively killed off the idea of Shane Ross’s ‘granny grant’ scheme and said that reducing inheritance tax is not a priority at this time.

In an interview with the Irish Independent, Mr Varadkar revealed he wants to try to replicate the hike in pensions from the past two Budgets.

He suggested this was a more workable way to “recognise grandparents” than introducing a €1,000 grant if they take on some childcare duties.

The ‘granny grant’ was floated by the Independent Alliance TD during a meeting with Finance Minister Paschal Donohoe ahead of next month’s Budget, but Mr Varadkar said he is still waiting to see “a detailed proposal” on how it would work.

“We have to understand what it is. How would you apply for it? What would the criteria be? How would it be verified?” he said.

The Taoiseach indicated he will take his lead from Children’s Minister Katherine Zappone, who has already poured cold water on the proposal.

“In the run-up to a budget I’d be very much guided by her views for the best way to spend an additional money we might have for childcare.

“There are lots of different ways in which we can recognise grandparents. By increasing the pension by €10 per week [as happened in the past two Budgets],” Mr Varadkar said.

Pressed on whether pensioners should expect a similar boost in 2019, as has already been demanded by Fianna Fáil’s Willie O’Dea, the Taoiseach replied: “Of course in the Budget in a few weeks’ time, what we’d like to work towards is a pension and welfare package, and an income tax package that is similar to what we had in the last two Budgets.”

However, he cautioned that while the economy is booming there is actually less money available this year due to changing demographics and pre-existing commitments to public sector pay restoration.

“It’s a paradox that it’s going to be harder to frame this Budget than the one last year, even though the economy is going well.

“Our tax receipts from August were disappointing. You wouldn’t want to read too much into one month but this Budget isn’t going to be a dramatic one, because we’ve pre-allocated so much in additional spending in housing, healthcare and broadband and all those areas for next year,” Mr Varadkar said.

One area that is unlikely to feature in Paschal Donohoe’s plans is inheritance tax.

A survey this week showed that thousands of families are set to be hit with huge tax bills when they inherit homes due to rising property prices.

The current tax-free allowance for children is now €310,000 but the Programme for Government says ministers will work with the Oireachtas to raise this to €500,000.

Yet Mr Varadkar told the Irish Independent: “The basic principle which I’d like to employ when it comes to inheritance tax is that you should be able to pass on your home, the average-priced home, to your kids without them having to pay capital acquisitions tax.

“But we do have to prioritise. There isn’t as much scope for tax reductions in the year ahead as we might like.”